A service that helped savers take advantage of dwindling interest rates and avoid falling onto pitiful deals at the end of bonus periods has closed, blaming the Government's Funding for Lending scheme for reducing competition in the savings market.

Governor Money has announced it is not taking on new customers or further deposits on products after a collapse in savings rates and the number of products available.

The online savings platform, which only launched in April 2011, said it had become a victim of the Government’s £80billion Funding for Lending scheme which provides banks with a cheap source of funds from the Bank of England.

Victim: Governor Money said a plunge in savings rates a direct result of the Funding for Lending scheme hit business

This flagship scheme has allowed banks and building societies to tap into the cheap money to fund loans, instead of tempting savers to deposit their cash with them through better rates. This has created a race to the bottom with many of the best deals withdrawn in recent months.

Governor Money gave savers access to a range of fixed-rate savings accounts and cash Isas through one account, sometimes on an exclusive basis, making switching to take advantage of the best rates easier. It also meant that savers could more easily switch funds into new accounts when bonus interest rate periods came to an end.

The service – which is owned by the Family Investments mutual - said the Government's Funding for Lending scheme had been a key component in its collapse as it was now unable to secure exclusive rates and had far fewer products to offer customers.

A statement on the Governor Money website reads: ‘Due to changes in the savings market over the past few months we have reached a situation where we have very few products to offer. In the long term this goes against our original commitment to provide a range of products and rates to our customers.

‘As a result of this we are no longer accepting new customer applications, accepting new funds or providing new fixed term products (either standard savings, joint savings or cash ISAs). This change has been in effect since Monday 17th December 2012.’

Governor Money reiterated that customers’ money is safe and no action is required.

Customers will continue to get the rate of interest and once the accounts mature, money will be automatically transferred back into their standard savings or Isa account.

Savers should not withdraw money from fixed-term products as this could result in lost interest and in many cases, no access is allowed anyway.

Savers with Governor can sign into their accounts and send a message, and can also call them on 0845 121 3315.

Savers with Governor Money have been told their money is safe as it was not held by the company, but instead third parties product providers, usually small building societies.

UK-based building societies, in common with other regulated providers, are fully protected under the Financial Services Compensation Scheme (FSCS) which guarantees the first £85,000 by saved should the institution go bust.

This is Money has reported drastically falling rates in recent months, with rates on best-buy instant-access accounts plummeting to just two per cent.

Fixed-rates have struggled too, with the average one-year fixed savings bond paying 2.73 per cent in December 2011 and falling to just 2.18 per cent at the end of 2012.

Two-year rates meanwhile have fallen even harder. In December 2011, the average account paid 3.32 per cent, whereas one year later this had fallen to 2.49 per cent.